Citizen's United II - the other foot

[kandrathe]

If your story was true, then we would not be at the ZLB. Full stop. It's impossible that you hit the ZLB because monetary policy was too loose, or because taxes were too low, or government spent too much. You can say we hit the ZLB because there was a financial crisis, and a flight to safety, but loose monetary policy *in the past* cannot do it. It moves in the opposite direction. It just doesn't make any sense.

Here is the chart. Clearly, the period following 9/11 needed stimulus in the form of easing interest rates, but there was at least a one year delay before they were ratcheted up again. Only 2006 saw them anywhere near previous levels, and by then the bubbles were ripe and ready to pop. It was about this time I remember being pretty uneasy about an overheated global market, and oil price spikes were disrupting the overall economy. In response to the 2008 financial crisis, they unloaded all their guns (well almost -- they dropped the rate to 2%). But, by then they had little ammunition left to fight off the economic malaise. 2008 was payback for the prior 5 years, or more maybe of exuberant mal-investments. The housing derivatives were the weak link that broke it then, but that is hardly the only weakness in our economic system. The next crash will reveal a different "scam". The common denominator in all these interventions has always been obfuscated financial instruments with insufficient industry (or government) oversight.